Archive for the ‘Metro Vancouver real estate’ Category

Strong demand alongside a shortage of residential property has led to a 30.8 per cent year-over-year decline in sales in Metro Vancouver.

However, the latest numbers released Tuesday by the Real Estate Board of Greater Vancouver showed the housing market is actually strengthening even though sales are off 2016 highs.

The 3,579 March sales marked a 47.6 per cent increase over February’s totals. The region saw a record-breaking 5,173 sales in March 2016.

“While demand in March was below the record high of last year, we saw demand increase month-to-month for condos and townhomes,” Jill Oudil, the Board’s president said. “Sellers still seem reluctant to put their homes on the market, making for stiff competition among home buyers.”

New detached, attached and apartment property listings hit an eight-year low for March. Listings totalled 4,762 last month, down 29.9 per cent from 2016.

“Home prices will likely continue to increase until we see more housing supply coming on to the market,” Oudil said.

The slowdown of Vancouver home sales has helped affordability a bit, but we’re still the country’s costliest market by far.

Royal Bank research shows “Housing affordability improved in the Vancouver area for the first time in almost three years” during the fourth quarter of 2016. It says the slowdown in home resales that began last spring had a “cooling effect” on prices for single-detached homes by late in the year. The bank’s economists say the affordability of houses improved the most since the first quarter of 2009 when Canada was in a recession due to the financial crisis.

Nonetheless, RBC says it takes 84.8 per cent of the median household income to pay the costs of owning the average detached bungalow in Vancouver.

Condos are a different story, with RBC saying “No such affordability relief took place.” Its measure of condo affordability worsened slightly for the seventh quarter in a row. Condos costs are at 46.1 per cent of household income.

RBC also says there are signs that “affordability stress” is spreading to regions near Vancouver and Toronto, including Victoria which the bank says “has experienced booming demand in the past year which has propelled prices significantly higher,” pushing its afforability measure “well above its long-term average.”

Metro Vancouver’s residential real estate story was a tale of two halves in 2016.

There were scorching sales leading into summer, a cooling off, and then a marked retreat after the province imposed a 15 per cent foreign buyers tax in August.

Many big-picture pundits say it will take another six months or more to fairly assess the impact of the tax. Others point to falling sales, and in some cases prices, as a small number of deals eke on.

Despite this, in 2016, Vancouver residential prices moved up 18 per cent, according to the Real Estate Board of Greater Vancouver’s composite benchmark price report released on Wednesday. Most of the gains were notched in the first half of the year, with the index moving back 2.2 per cent in the second half, according to the board’s report.

The number of sales — including detached houses, condos and townhomes — came in as the third-highest on record for Vancouver in 2016, falling 5.6 per cent from a record year in 2015.

Digging into the latest report, there are early signs of a bounce if you look at median prices. With so few listings, and as such, sales, some prefer to use this gauge, which means the “in the middle price” where half the homes sold went for above this mark and half for below as opposed to taking the average of only a handful of sales, where the result could be easily skewed by one very expensive or slumped sale.

For example, the median price for detached homes is steadying because it has been sitting in the $1.275 million to $1.3 million range for the last four months. Meanwhile, the median price for town homes, at $659,000, is now nearly at its June peak median price of $666,000. Condo median prices show an even stronger stride, hitting a new high of $495,000.

To put the slowdown into perspective, consider Knight Frank’s latest Prime Global Cities Index, which tracks the prices of the top five per cent of homes in metro areas of 35 cities around the world. Vancouver outstripped all other contenders in 2015 and in September 2016 it was still at the top, posting a 32 per cent change year-on-year.

“Urbanization and rising household wealth are behind the surge in Chinese prices,” wrote Knight Frank researcher Kate Everett-Allen. “Vancouver, a longtime front-runner, slid down the rankings this quarter, from fifth to ninth position. This shift is not as a result of slowing prices, annual growth is much the same as in June, close to 24%, but due to the phenomenal ascent of the Chinese cities which have supplanted it.”

Overall, house prices increased in more than 75 per cent of the 150 cities surveyed, year-on-year, but only in 13 of them did the increase in prices exceed 20 per cent. Victoria, B.C. just missed being one of those cities on the list, coming in 15th on the list with an 18 per cent gain.

It’s an “interesting report. I really like the global comparison that it facilitates,” said Andrey Pavlov, who specializes in real estate finance at Simon Fraser University’s Beedie School of Business. However, he cautioned that: “First, the data is as of end of September, 2016. This was still very close to the peak, which occurred around June or July. Second, the report uses year-over-year increases, and all of the Vancouver increases occurred earlier in 2016, and some in 2015. With this in mind, the report captures historical trends, but does not really address the recent developments in our market.”

When property prices are rising, even just a little, there is almost no better place to keep your money than invested in your own home.

Monthly real estate numbers released Friday show the price of the average Canadian home rose again in September, up almost 10 per cent in the past year. But if and when that trend reverses and prices turn flat or start to fall, the investment advantages of owning a home can take a dramatic turn for the worse. The reason is tax.

At various times in the past, different governments have decided that having citizens own their own homes was a good thing, worth encouraging with tax breaks.

In the U.S., the government decided the way to encourage and reward home ownership was to sweeten the pot by allowing buyers to deduct their interest costs from their taxable income.

That effectively means lower costs in the early stages of home ownership when interest costs are high. In fact, one U.S. home ownership strategy is to pay off a house very slowly, since the interest costs are subsidized by government.

In Canada, the federal government chose a different policy tool to accomplish a similar result.

Instead of giving you a deduction for your payments, the Canadian tax department saves up the entire tax break for when you sell your family home. If during the years you own the property, the value increases, that gain is tax-free.

Earlier this month, Finance Minister Bill Morneau announced changes in the law to try to deny foreign buyers the tax break. Under the old rule, when you sold your principal residence you didn’t even have to mention it to the tax department.

Just as U.S. interest tax deductions affect how people buy and pay off their houses, the Canadian policy has its own consequences.

When property prices are on the way up, rising more than 20 per cent in a year as they have in Toronto and Vancouver, for tax purposes, there is almost no better place to keep your money.

In fact, a good tax strategy might be to buy a house with the biggest mortgage you can afford the payments on. The law can also make it a good strategy to up-size when you can afford it.

The math is clear. If you put down $100,000 on a million-dollar home, and get a $900,000 mortgage for the rest, you own 10 per cent of the house while the bank owns 90 per cent. But if that $1 million home goes up in value by 20 per cent, the bank doesn’t get a share of that increase — all of the capital gains are yours.

Sell, and you’ve just turned a $100,000 investment into $300,000, tax-free.

That’s also why there are so many contractors who buy a house and keep it for a year while they fix it up for resale. Not only do they get the standard capital gains that other sellers get, if they do a good job on the renovation, they get an added premium, and by claiming the house as a principal residence, all the money they earn is free of tax.

The capital gains tax also affects elderly homeowners. While house prices are rising, retired people, especially the well-heeled, have little reason to sell their houses and downsize. Capital gains on their houses are tax-free, but the income from the proceeds of selling a house that are invested outside tax shelters (such as retirement savings plans, tax-free savings accounts and registered retirement income funds) is fully taxable.

Canadian house prices have continued to increase over the very long term. With population continuing to rise strongly, that’s unlikely to change over the long term.

That means people who buy a house with the intent of raising a family will very likely be able to take advantage of the federal capital gains break on principal residences even if real estate goes off the boil for a few years.

As I’ve mentioned in the past, when my family came back to Canada at the end of the 1990s, we visited friends who told us their home had just climbed back to the value they had purchased it for 13 years before.

If you own a home, declining house prices are bad for your finances in any case. But the capital gains tax break makes it even worse.

For some potential homebuyers, the effect of a medium-term slide in property prices and its impact on the capital gains advantage could alter the calculus for thinking of a home as an investment.
In such a case, potential short-term buyers might be wiser to rent. Flippers will have to recalculate their profit margins. Up-sizing may lose its advantage. Retired people might be better off selling and investing the cash, because income taxed is better than no income at all.

And unlike other investments that can be claimed as a loss when they fall in value, a house cannot. In other words, capital gains on your principal residence are sheltered from tax. But so is a capital loss.

It’s hard to be sure to exactly what degree capital gains tax breaks affect people’s decision to use their principal residence as an investment. But it would seem that during a period of declining prices, that tax break would have the effect of further reducing demand for houses.

Sales fell 26 per cent last month in Greater Vancouver’s real estate market while prices hit new highs or stayed near records in the wake of a new tax on foreign buyers in the region.

There were 2,489 detached houses, condos and town homes in the region that sold in August, compared with 3,362 properties in the same month of 2015, the Real Estate Board of Greater Vancouver said Friday.

Industry observers had predicted a slowdown in transactions after the introduction of a new 15-per-cent tax on foreign buyers that took effect on Aug. 2 for purchases registered with the province’s land title office. The B.C. government announced the change on July 25 to the province’s property transfer tax, affecting foreign buyers who acquire homes in the political entity known as Metro Vancouver.

In Greater Vancouver, which covers a large portion of Metro Vancouver, the benchmark price of detached houses, condos and town homes reached a record $933,100, up 31.4 per cent from a year earlier and an increase of 0.3 per cent from July.

The benchmark price is a representation of the typical property sold in an area, excluding the most expensive transactions on the Multiple Listing Service.

Home sales in the region were already beginning to slow this summer after a record-breaking spring.

Sales of detached houses, condos and town homes in Greater Vancouver fell 18.9 per cent in July from a year earlier. The drop was concentrated among sales of detached properties, which declined 30.9 per cent from July last year, following an 18.6 per cent annualized drop in June.

March, April and May are traditionally the busiest months for sales of existing properties, with activity slowing from June until mid-September.

The number of new listings has been on the rise since February, although the market has remained tight because of strong sales activity.

While the focus has been on an influx of buyers from China into several neighbourhoods on Vancouver’s west side, some industry observers say there are other contributing factors such as low interest rates, population growth and limited housing supply.

Housing price appreciation across the country will be more than it has been in the last 16 years, according to a new forecast from one of the country’s largest real estate companies.

Royal LePage, in a report out Wednesday, says economic uncertainty around the globe and low interest rates continue to fuel the Canadian existing-home market, adding that prices will rise by 12.4 per cent in 2016 from 2015 to an average of $563,000.

The real estate company predicts greater Vancouver will lead the way with prices rising 27 per cent this year to an average of $1.206 million, while greater Toronto prices will rise 14.9 per cent to and average of $718,000 during the period.

LePage says its previous forecasts didn’t account for an extended period of low mortgage rates which continue to fuel the housing market. Ratesupermarket.ca says the best fixed rate on a five-year mortgage is now 2.18 per cent, close to a record low.

“Our forecasting models, which pointed to a slowing housing market as the year progressed, included a modest increase in the cost of borrowing,” said Phil Soper, chief executive of LePage. “Economic and social disruptions have rocked the world once again, introducing new risks and making it very likely that the Bank of Canada will leave interest rates as-is for now. Few industries are as rate sensitive as real estate. We don’t see even a mild correction for either the Toronto or pistol-hot Vancouver markets in 2016.”

Despite citing the Brexit vote as increasing uncertainty in the market, LePage says foreign money tied to Europe will flow into Canadian commercial real estate as opposed to the residential market.

LePage’s own internal surveys do say foreign markets are impacting Toronto and Vancouver real estate, but the money is coming from beyond the European Union.

Its surveys of agents in the second quarter found 71 per cent in the GTA and 74 per cent in Greater Vancouver reported an increase in activity from foreign investors who were defined as having lived outside Canada for the last six months. LePage said 35 per cent of agents in the GTA and 37 per cent in Greater Vancouver believe foreign ownership accounts for less than 10 per cent of sales.

Government continues to consider measures to deal with the impact of foreign owners and the federal finance minister has promised to create a working group of provincial and municipal counterparts to consider the issue in Toronto and Vancouver. On Monday, British Columbia agreed to grant Vancouver the right to tax owners of vacant property — a move seen as being at least partially aimed at foreign investors.

Soper cautioned against government getting too involved in the housing market.

“We remain convinced that heavy-handed use of tax policy in an effort to artificially influence asset values in an open-market economy like ours is fraught with peril, particularly in a cyclical industry like housing.”

Still, he left no doubt his industry has some concerns about the fast-paced nature of the market and some of the impact it has on prices. Soper even issued a warning to speculators.

“At Royal LePage, we see residential real estate as a long-term investment supporting family life. A home is ill-suited as a buy-and-flip investment. People that engage in this kind of activity are inevitably burned when a market slows and the time it takes to sell the property increases substantially,” he said.

More than 90 per cent of all detached homes in Vancouver are now worth more than $1 million, up from just 19 per cent a decade ago, a new study by a local urban planner has found, showing how rapidly housing prices have escalated in the Canadian city.

The biggest jump came in the last two years, with the proportion of million-dollar homes in the city climbing to 91 per cent in 2016 from just 59 per cent in 2014, according to the study by Andy Yan, acting director of Simon Fraser University’s City Program.

“This shows how what used to be the earnest product of a lifetime of local work is perhaps quickly becoming a leveraged and luxurious global commodity,” said Yan.

The median household income in Vancouver, meanwhile, rose just 8.6 per cent between 2009 to 2013, according to the most recent data from Statistics Canada. Adjusted for inflation, it would be about $77,000 a year in 2016.

That puts typical incomes well below the threshold needed to purchase million-dollar homes, said Yan, noting other factors must be driving the sharp increase in home values in Vancouver.

“It’s global cash, meeting cheap money, meeting limited supply,” he said, adding that all three factors are working to “magnify each other” and drive further speculation.

Foreign investment has long been blamed for soaring housing prices in Vancouver, with the most recent wave of offshore cash coming mostly from mainland China.

A widespread corruption crackdown launched by Chinese president Xi Jinping in late 2012 has led to massive currency outflows, which have coincided with a sharp jump in housing prices in Vancouver’s prime neighborhoods.

The new data comes as Canadian Prime Minister Justin Trudeau is in Vancouver for a two-day visit. Trudeau on Thursday said that his government needs to take measures to ensure residents of cities like Vancouver and Toronto can afford housing.

Yan’s study looked at provincial assessment data, which lags sales data by several months, and was focused exclusively on the roughly 67,000 detached homes in the City of Vancouver. All values were adjusted for inflation.

Region-wide, the price of a detached home soared 130 per cent over the last 10 years to hit $1.5 million in May, according to the local real estate board. Adding in apartments and townhomes, the typical home in Greater Vancouver now costs $889,100.

Home sales in Greater Vancouver are on a hot streak, and the professional association representing all the real estate boards in the province is bumping up its forecast for 2016, predicting escalating prices and a jump in the number of homes sold.

The British Columbia Real Estate Association forecasts unit sales in the Greater Vancouver region will increase 8.9% in 2016, from 43,145 homes sold in 2015 to 47,000 this year.

For B.C. as a whole, unit sales are forecast to increase 12.3% to 115,200 units, breaking the previous record of 106,310 units sold in 2005.

“Robust employment growth and a marked increase in migration from other provinces is buoying consumer confidence and housing demand in most regions of the province,” said BCREA chief economist Cameron Muir.

“Record housing demand has depleted inventories in many urban areas, and the resulting imbalance between supply and demand has pushed home prices considerably higher.”

The average sales price for homes in Greater Vancouver is expected to reach $1.125 million this year, up 24.6% from $902,801 in 2015. Across the province, the average price is forecast to increase 20.4% this year, from $636,600 last year to $766,600 in 2016.

This latest forecast is in sharp contrast to the BCREA’s previous release, in which it had predicted an 8.2% drop in unit sales across Greater Vancouver and a 6.2% decline across the province as a whole.

The BCREA had previously said home sales would fall because of a lack of supply. It now says a jump in new home construction is set to help meet demand.

“Waning inventories of newly completed and unoccupied units are being offset by a market increase in the number of homes under construction,” the BCREA said in a news release.

“Total housing starts in the province are forecast to climb 20% to 37,800 units this year, before edging back to 34,200 units in 2017.”

According to new research published by international real estate consultant Knight Frank, 35 of the world’s most important cities saw an average price increase of 3.6% in the year to March 2016.

“Since 2014 the index has consistently seen annual growth of 3-4%, with no city recording double-digit annual price declines since the second quarter of 2015,” notes Kate Everett-Allen of Knight Frank, who carried out the study.

However, Everett-Allen found some notable differences both between regions and within them. In North America, for example, New York, Miami and Los Angeles grew by 2.3%, 3.8% and 5.1% respectively but Vancouver saw a spectacular 26% rise in real estate prices — despite a 1% increase in land transfer tax on purchases above CAD2M.

Australasia was more homogeneous, with both Sydney and Melbourne posting a 12% rise. The two African hubs were also in positive territory, albeit with some difference between the two—Cape Town went up 6.9% and Nairobi up 3.3%. Asia was rather more of a mixed bill, with excellent growth in Shanghai (to the tune of 20%) but sizeable drops in Hong Kong and Taipei (down 6.4% and 7.6% respectively.

In Europe, real estate growth was modest and fairly consistent across the majority of cities, with prices either remaining flat or recording small rises of less than 3%. Only Moscow, Paris, Milan and Monaco bucked the trend. The first three saw dips (of 5.9%, 2.7% and 1.2% respectively) while Monaco recorded a 4.9% rise.

However, says Everett-Allen, some of these numbers need to be analysed in the context of past performance. Prices in London, for example, only grew by 0.8% in the year to March, the lowest figure since October 2009 — but the British capital had experienced a period of exceptional growth in earlier years so a slowdown was natural.

Interestingly, the Knight Frank study also showed that, across the world, the impact of new transparency rules, new taxes or fees for foreign buyers—all of which are seeing a surge in global hubs—varies hugely depending on the pre-existing fundamentals and market cycles.

Thus, the land transfer tax rise had no depressive effect in Vancouver, nor did new transparency rules for cash buyers affect the New York and Miami markets. In London, by contrast, a series of changes to stamp duty land tax and to purchases by non-domiciled residents, have amplified the market cycle and helped slow down price growth.

Despite ongoing warnings from the CMHC that the Vancouver housing prices are overvalued and have outpaced the economic fundamentals in the city, they keep climbing.

In the past year, the benchmark price for a detached home in the region — not just the City of Vancouver itself — has climbed 30.1 per cent, to $1.4-million, according to new numbers from the Real Estate Board of Greater Vancouver.

The “benchmark” price is a measure used by the board to describe what it calls a “typical property” in the market, taking into account bedrooms, lot size, and other factors, and is not an average or median price.

To put that in context, the median family income in the Vancouver metropolitan area is $73,390 — lower than the Canadian average, according to the latest census numbers available.

The highest benchmark price for a detached home is still Vancouver’s west side, at $3.2-million, which is up 172 per cent over ten years, and 28.4 per cent in the past year.

But the largest increases in house prices in the past year are outside Vancouver:

Tsawwassen up 41 per cent to $1.16-million.
Richmond up 36.5 per cent to $1.5-million.
Ladner up 35 per cent to $971,500.

Apartment and townhouse listings went up 20.6 and 22.1 per cent, respectively, in the past year in Greater Vancouver.